A daily market update from FS Insight — what you need to know ahead of opening bell

“Model the behavior you wish more people would display. Lead first.” — Robin S. Sharma

Over the Weekend

The ‘one’ way for Wall Street banks (FT)

Why corporate bonds are so hot right now (FT)

At least 15 killed in synagogue, two churches, and a police post by gunmen in Russia’s southern Dagestan region (AP)

UPS sells freight-brokerage operation to RXO (WSJ)

A Texas factory becomes a key ammo supplier for the U.S., Ukraine (WSJ)

Rahm Emanuel calls on U.S. and Japan to accelerate missile production (FT)

Europe’s response to China Shock 2.0: hold China closer (WSJ)

U.S. borrowing binge risks market strains, analysts warn (FT)

U.S. business activity rose to a two-year high (RT)

U.S. corporate credit spreads jumped to a three-month high (RT)

Asian L/S hedge funds are leading global gains this year (RT)

Emerging market currencies are seeing their worst H1 since 2020 (FT)

Emerging market duration bets are back in fashion (BBG)

Equity funds saw a second-straight week of outflows (RT)

European companies cut jobs as economy sputters (RT)

Japan inflation growth fuels hopes for BOJ rate hike (WSJ)

JPMorgan wealth CEO sees China economic outlook improving (RT)

Investors wary on Mexico following peso rout (FT)

PE roll-ups bet energy transition will go slow (FT)

Fed chides bulge brackets for flawed ‘living wills’ (RT)

Apple to delay AI launch in Europe due to regulations (RT)

Invesco bucks trend with European China-focused ETF (FT)

Nvidia launched its first large-scale operation in the Mideast (RT)

Apple and Meta discussed an AI partnership (WSJ)

Yaccarino shakes up X amid pressure from Musk (FT)

U.S. tourism boom is lifting Europe (WSJ)

Forget privacy, young internet users want to be tracked (FT)

Taiwan wants a drone army, but China makes the drones it wants (WSJ)

It’s the summer of the finance bro (WSJ)

Here’s what retirement looks like when real estate is your 401(k) (WSJ)

AI is helping scammers outsmart you and your bank (WSJ)

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

As we enter the final week of June, the global economy finds itself strengthened for the month while inflation has weakened, which is a positive fundamental combination. At the start of this month, we listed six reasons we expected the S&P 500 to gain ~4% to 5,500 and, in our view, this strengthening of stocks is supported by the fundamental positives just noted.

There is quite a lot of macro this week:
– 6/24 Mon 10:30 AM ET: Jun Dallas Fed Manuf. Activity Survey    -15.16e
– 6/25 Tue 8:30 AM ET: May Chicago Fed Nat Activity Index    -0.25e
– 6/25 Tue 9:00 AM ET: Apr S&P CoreLogic CS home price    0.34%e
– 6/25 Tue 10:00 AM ET: Jun Conf. Board Consumer Confidence    100.4e
– 6/26 Wed 10:00 AM ET: May New Home Sales    1.14%e
– 6/26 Wed Super Grannies Webinar
– 6/27 Thu 8:30 AM ET: 1Q T 2024 GDP    1.38%e
– 6/27 Thu 8:30 AM ET: May P Durable Goods Orders    -0.62%e
– 6/28 Fri 8:30 AM ET: May Core PCE    0.13%e
– 6/28 Fri 10:00 AM ET: Jun F U. Mich. 1yr Inf Exp

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TECHNICAL

S&P and QQQ both showed minor weakness late last week, yet failed to do much technical damage. Both SPY and QQQ finished positive on the week, and while there were brief signs of rotation out of Technology, they did not prove long-lasting. Equal-weighted strength earlier last week was encouraging of thinking many non-Tech related sectors could be starting to turn back higher, to erase some of the recent divergence. At present, U.S. Dollar and TNX look to be on the verge of large declines into August, and we suspect that the broad-based rally should get underway as 3Q begins. Overall, we see no evidence that our minor pullback from Thursday/Friday is indicative of anything more than just minor consolidation before yet another push back to new high territory.

A few reasons why our minor selloff shouldn’t grow too severe and could be complete by early next week…

Click HERE for more.

CRYPTO

Sonic, a gaming-focused Solana L2, raised $12 million in a Series A round led by Bitkraft Ventures, with participation from Galaxy Interactive, Big Brain Holdings, and others. The round was structured as equity with token warrants and valued Sonic at an FDV of $100 million. The new capital brings Sonic’s total funding to $16 million.

Solana has become a clear favorite among crypto incumbents due to its high throughput and low gas fees. Its adoption metrics have been impressive over the last year with daily transactions approaching 40 million on busy days, and daily active addresses ranging between 1-2 million in recent months.

Although Solana has higher throughput compared to other L1s like Ethereum, it still struggles to keep pace with demand, especially when TPS exceeds 4000, which has historically dropped the transaction success rate between 70-85%. Just as Ethereum has offloaded transactions to various rollups, the need for Solana to adopt the same approach is increasing.

Sonic is a gaming focused Solana L2 developed by Mirror World Labs (MWL) and supported by its proprietary HyperGrid Framework, a scaling technology enabling horizontal rollups on Solana. Sonic claims to support 50,000 TPS per Grid and be 10x faster than Solana mainnet, which can serve as the solution to reducing mainnet congestion. Sonic is also built using the Solana Virtual Machine (SVM), allowing developers to easily port Ethereum dapps to Solana.

Sonic just finished its devnet stage where five gaming studios were testing the technology. The incentivized testnet launched on Wednesday, enabling users to play games and send transactions on Sonic in return for “rings.” Rings are Sonic’s equivalent to points, but Sonic’s CEO stated that they will not be directly convertible into Sonic tokens. He clarified that users will be rewarded in some form for interacting with the protocol. Sonic’s mainnet and token are expected to launch sometime in Q3, and the funding should help Sonic shore up its core development team in preparation for launch.

Click HERE for more.

First News

Early Days at Skynet. Jeff Hawkins’ detractors say he’s driven by theory and grand ideas rather than pragmatism and business applications, which is why the work of the PalmPilot co-inventor doesn’t always take off. But even his detractors admit he may be onto something with the brain and AI.

Bill Gates, who advised on Microsoft’s strategic partnership with OpenAI, is backing Hawkins, who’s spent decades studying the human brain to build better machines, as a wildcard in the race toward artificial general intelligence (AGI).

The Gates Foundation has awarded $2.7 million to Numenta, Hawkins’ 19-year-old firm – which makes money by partnering with Intel et al to sell machine-learning services to businesses and also conducts AI research – to put his thesis to the test. Based on the belief that the secret to developing the ultimate AI algorithm may lie in understanding the human brain, Numenta will use the money to develop software that reflects Hawkins’ concept – namely, that sensorimotor-type AI systems could be helpful to resolving global health issues (the remit of The Gates Foundation) – and plans to release the code through its Thousand Brains Project.

In Hawkins’ theory, AI should behave like the neocortex – the part of the brain responsible for a person’s ability to think, act, and speak – processing inputs from sensors and movement in order to learn. The belief is that this will produce new breakthroughs needed to build truly intelligent machines, where neural networks – though originally inspired by the way the brain’s neurons communicate with one another, adapting by strengthening and weakening synapses as they learn – over time began to look less and less like the human brain, choosing sheer size and scope over the elegance and efficiency of their namesake.

Think large language models (LLMs), such as the ones that power ChatGPT. By ingesting inhumanly large amounts of text, the models predict the next token (fragment of a word) based not on true understanding, but on how tokens statistically relate to one another – a mechanism known as ‘attention’. Yet some experts believe the brute-force approach of these models will eventually lose steam and the performance improvements will plateau.

The human brain is much more intelligent; also tiny and energy-efficient; and could be a model for computers to emulate. Hawkins believes the key lies inside something called the cortical column. The neocortex, made up of hundreds of thousands of cortical columns that build models of the world and make predictions about how the world functions, could be described as what you get if you strip away the parts of the brain that make us human – our emotions, survival instincts, and appetites – leaving pure understanding.

The idea is that theories about the way the neocortex works could give AI researchers new ideas about how to craft algorithms that gain a better understanding of the world. Hawkins is well known for being an excellent theorist, well ahead of the curve. For example, even before internet browsers became the law of the land, he knew that the next era of computing would be a handheld device that would run on a battery all day.

And yet, speak to any neurosurgeon with at least as many decades of picking people’s brains as have passed since Hawkins gave us the PalmPilot, and you’ll hear that our understanding of the brain is too primitive to build brain-based machines as advanced as he imagines. If it works as planned, it could be one of the larger technological breakthroughs in human history and may lead to a future that’s difficult to imagine – a time when machines take over human labor and generate all economic value. Or just take over.

It does sound like a hyper-autistic – again, “minus emotions, survival instincts, or appetites” – version of the human brain. But will it be content to merely perform all human labor without wanting something beyond the rote drudgery? May it not unknowingly, spontaneously cross some Rubicon into human-ness à la the dinosaurs in Jurassic Park?

One crude analogy to help us conceptualize this could be powered flight. For various reasons, mostly having to do with the primitive state of materials science and aerodynamics research at the time, early aeronautical engineers chose not to imitate the flexible wings of birds, and instead went with a different approach – fixed-wing aircraft featuring larger and larger wingspans and more and more powerful engines (kind of like data centers with hundreds of thousands of graphics processors running hot and generating answers to our queries) in order to carry more and more weight farther and farther.

The Quetzalcoatlus northropi, the largest pterosaur known to science, was roughly the size of a Cessna 172 light aircraft, had a wingspan of 33-36 feet, and weighed anywhere from 150 to 550 lbs (although, at the upper reaches of that range, scientists doubt it could actually fly).

The Antonov AN-225 Mriya, the Ukraine-made airplane with the largest cargo capacity ever, had a wingspan of 290 feet and a maximum takeoff weight of 640 metric tons (1,411,000 lbs). That’s a ratio of wingspan to weight of 0.065 for the pterosaur, nature’s largest flying machine ever, and 0.00021 for the Mriya. The ‘unnatural’ way of engineered powered flight yields 310 times the efficiency.

A hundred and twenty years since Kitty Hawk, now that staggering advances in aerodynamics and materials science have been made, is it really time to return to the example of bird- or pterosaur-like flexible wings just for the idea of some additional elegance it might afford us? Semafor